The taxation system in India is governed by Income Tax Act,1961. Among various provisions, Section 194Q and Section 206C is crucial in regulating tax collection at source (TCS) and tax deducted at source (TDS). Although, these sections aim at collecting taxes from specific transactions, they differ in terms of their scope and applicability.
What is Section 194Q?
Section 194Q of the Income Tax Act was introduced in the Union Budget of 2021. It applies, when buyer’s total sales, gross receipts or turnover from the business carried on by him exceed 10 crore rupees during the financial year immediately preceding the financial year in which the goods were bought.
Under Section 194Q, any person, being a buyer, purchases any goods from a resident seller of the value or aggregate of such value exceeding 50 lakh rupees in any previous year, shall deduct tax at the source of the transaction.
- Time of deduction: earlier of the following:
- at the time of credit of such sum to the seller’s account or
- at the time of payment,
- Amount of TDS to be deducted: an amount equal to 0.1% of such sum exceeding 50 lakh rupees as income-tax.
The provisions of this section shall not apply on the following transactions:
(a) tax is deductible under any other provision of this Act; and
(b) tax is collectible under section 206C, except for the transaction to which sub-section (1H) of section 206C applies.]
(The rate of TDS applicable, where the deductee has not furnished his PAN number, is 5%)
What is Section 206C(1H)?
Section 206C(1H) was introduced in the year 2020 and is effective from 01st October 2020. It applies when the gross receipts/ turnover of the seller for the previous year exceeds Rs 10 crore.
As per the provisions of this section, every person, being a seller, receives any amount as consideration for sale of any goods of the value or aggregate of such value exceeding 50 lakh rupees in any previous year from a single buyer, shall collect tax at source of the transaction from the buyer.
- Time of collection: at the time of receipt of such amount.
- Amount of TCS to be collected: a sum equal to 0.1 % of the sale consideration exceeding 50 lakh rupees as income-tax:
Section 206C(1H) will not apply:
- i) Where the seller has received consideration on account of the export of goods out of India,
- ii) Goods covered under section 206C (1) such as tendu leaves, timber, scrap, alcoholic liquor for human consumption, minerals, etc
(The rate of TCS applicable, where the buyer has not furnished his PAN number, is 1%)
If a transaction is covered in both of these sections 194Q and 206C(1H)
- Then, the tax is shall be deducted under section 194Q.
- However, if the seller has collected tax under section 206C(1H) of Income Tax Act, before the buyer could deduct tax under section 194-Q of the Act on the same transaction, then the buyer is not liable to deduct tax at source on such transaction.
- This concession is provided to remove difficulty, since tax rate of deduction and collection are same in section 194Q and section 206C(1H) of the Act.
